With earnings season well under way, results have been predominantly beating the estimates. Heading into this week, 151 companies from the S&P 500 had reported, with 74% exceeding estimates, while the results beat expectations by an aggregate of 5%, according to Thomson First Call.
Large-cap technology firms, however, have had decidedly mixed results so far. For every
with blockbuster results, there's been a
( MOT) with disappointing quarters and/or guidance.
Still, technology remains alluring to many investors, and many market-watchers believe now is a good time to selectively add to your tech holdings.
For the purposes of this exercise, let's assume that's the case. But let's also assume that, rather than chasing the biggest names, greater price-return potential exists in mid-caps and ADRs.
The accompanying table reveals the TheStreet.com Ratings' top 10 buys in the technology sector, ranked by rating.
To make this list, the stock has to score in the top 10th percentile in cash flow, total return to shareholders, capital efficiency, low price volatility and solvency -- the five core factors in our stock-ratings model.
The minimum market cap considered was $2 billion, which filtered out the smaller, more volatile investments. The minimum rating acceptable was A-, the rating our stock model assigns to
In addition to Apple, the top 10 list includes other well-recognized names such as
But, again, the idea is to dig beyond the obvious, popular names for fresh ideas in the technology sector. So let's look more in depth at the other five "undiscovered gems" on our list.
Our stock model's top pick is
. This A-rated $5.6 billion market-cap stock is up 49% year to date. Amphenol reported earnings last Thursday, beat estimates and was rewarded with a new 52-week stock-price high. The company makes electronic and fiber-optic connectors and is also benefiting from global demand for its wireless handsets.
The recent acquisition of Teradyne Connection Systems also functions as a growth driver. Our model likes Amphenol's high profitability and cash-flow generating ability, which more than offset the debt burden taken on to fund the TCS acquisition. Earnings guidance numbers continue to climb for this favorite.
Next on this list is a $72.4 billion ADR,
. Rating: A. This Japanese maker of consumer and business technology is up 30% year to date with global growth flourishing in all sectors: cameras, business machines and optical products. Our stock model likes CAJ's low debt-to-equity, efficient use of capital and its past growth. In a flight-to-quality scenario, this global bellwether could experience further upside appreciation as managers seek stocks with a balanced book of international businesses and solid total return potential.
Speaking of portfolio manager favorites,
Factset Research Systems
is now a $2.4 billion market-cap stock and comes in third on this screen. Rating: A. The company supplies a range of financial intelligence products/services to the global investment management community. FDS is a dream growth play with 27% year-over-year revenue growth, 23% ROE and barely any debt to speak of. It sells at only 25 times next year's earnings.
If you have trouble warming up to these names, try
. Rating: A. This $2.6 billion market-cap stock deserves to be a core holding. The company provides advanced global positioning system products and technology for commercial and government use. Two weeks ago, it signed a cross-licensing deal with
, adding GPS technology to mobile phones.
Our stock model likes the top-line revenue growth of 20% year over year, and profitability margins that are double its electronic peers. This stock has not gone completely unnoticed but has some near-term upside left. The stock is up 34% year to date, and the company is expected to report earnings on Tuesday after the market closes.
For those interested in sustainable competitive business advantages, look into
. Rating: A. The company manufactures and markets weighing and analytical equipment for laboratory, industrial and food-retailing applications and has leading positions in several product lines.
Our stock model values the company's highly efficient use of capital through share repurchases and well above-average profitability. This stock is relatively undercovered and is up only 20% year to date on increasing earnings guidance. Next quarter's earnings report is expected on Nov. 2 after the close.
As we always caution, before proceeding to invest in the names on the list, note that just filtering stocks on a set of financial or technical criteria alone can expose your portfolio to risk. Also remember that past performance is not a guarantee of similar future gains, especially for a nondiversified list of highflying technology stocks.
For true technology stock aficionados, the question remains: What about my favorite stock? Each quarter we publish a listing of stocks by sector that our stock model rates buy and maybe your favorite is one of them. In the interim, you can search for our ratings on individual stocks
Rudy Martin is the director of research for TheStreet.com Ratings. In keeping with TSC's Investment Policy, employees of TheStreet.com Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published.
In keeping with TSC's Investment Policy, employees of TheStreet.com Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published.
While Martin cannot provide investment advice or recommendations, he appreciates your feedback;
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